Offering internships or placements: What are the obligations? To pay or not to pay?

April 2, 2012

Top five matters that you should consider when deciding to offer work placements or internships:

1. Employment status

There is no legal definition of the legal status of interns. However, both case law and statute give guidance on which individuals can be regarded as “employees”. Employees work under contracts of employment and, importantly, such contracts can be implied by law and they can be oral. Employment relationships normally have mutuality of obligation (i.e. the obligation to work in return for the obligation to pay a wage) and a significant degree of control by the employer over the employee.

On the other hand, “workers” can work under either a contract of employment or some other contract which again may be implied by law and may be oral. Such contracts provide for the individual to undertake work personally in return for pay or some other benefit in kind.

Consequently, an intern could be either an employee or a worker if the characteristics above apply.

If an intern is neither an employee or worker they will be a “volunteer”. An intern who is a volunteer will undertake work for no financial reward or benefit, aside from reimbursement of out-of-pocket expenses, and does not have to turn up for work if they do not want to. It is irrelevant whether the intern performs the work for altruistic or other reasons, for example to enhance the intern’s CV. A volunteer will not have employment rights (although there is a case which has been referred to the Supreme Court which might establish that volunteers have the right not to be discriminated against).

The tribunal has, in a number of cases, implied that interns and volunteers (who are comparable to interns) who were paid expenses have, in fact, been paid reimbursement for work. This has permitted the volunteers and interns the status of either “worker” or “employee”. As an employee or worker, an intern will be entitled to the right not to be discriminated against, paid annual leave, and the right to be paid the national minimum wage. As an employee, an intern will be entitled to the right not to be unfairly dismissed and the right to a redundancy payment if made redundant after two years’ service (although, in reality, few will work on this basis for one business for that long).

2. National minimum wage

If your interns do not receive monetary payment or benefits in kind (other than reimbursement for expenses either actually incurred or reasonably estimated as likely to occur) in return for work, they are not employees or workers and there will be no entitlement to the national minimum wage. According to Government guidance, permitted expenses to volunteers are the costs of travel which occur in the course of volunteering (and presumably the same applies to interns).

According to Government guidance, simple work shadowing which does not involve an intern performing any particular work will not entitle an intern to the national minimum wage. However, a placement that may lead to an offer of permanent or paid work could result in the intern being deemed a “worker”, as the promise of paid work is a “benefit” for the work undertaken by the intern. As soon as any internship or work experience tips over the line of obliging an individual to perform particular activities in accordance with your instructions, they risk being deemed a worker or employee and entitled to the national minimum wage. Note: the ultimate sanction for infringement of national minimum wage legislation is criminal (as well as incredibly bad PR)!

Exclusions from the national minimum wage entitlement:

• internships which are part of a further or higher education course which are of less than one year; and

• work placements by individuals who are of compulsory school age.

Documenting the relationship will be a helpful way of establishing that any intern is a genuine volunteer and outside of the scope of the national minimum wage. Such as document would ideally state:

• the date of the placement;

• suggested (rather than obligatory) hours of attendance; and

• which work-related expenses are covered.

3. Immigration permissions

This will be required if they are employees or workers and they are subject to immigration control, i.e. an internship where they undertake paid work, for example, during university holidays. Even if they are not employees or workers, if you are a licensed sponsor you should take a sensible view. For example, if you are looking at potential future employees or if your interns will be there for an extended period of time you should obtain immigration permission.

You should avoid a policy of “resident only” interns. This could be considered as discriminatory. However, you should make any offers of a placement conditional on appropriate immigration status and check early on in the process what permissions may be required. You should be asking for proof of the right to work of all applicants in order to avoid accusations of discriminatory treatment.

4. Intellectual property and confidentiality

Unlike employees, intellectual property rights created by interns will not automatically vest in your company. Therefore, an internship document which requires individuals to assign any intellectual property rights that they might create could be very helpful, particularly in relation to any intellectual property that an intern might create whilst on a placement.

Interns should also be contracted to adhere to confidentiality and intellectual property matters in order to protect sensitive commercial information that might be helpful to any future work placement or job in which the intern may end up.

5. Recruitment

If an internship is offered to the friend or relative of one employee, but not another, it can raise accusations of discriminatory treatment. A policy such as only allowing interns who come from client or commercial contacts could be a way of avoiding this whilst still accepting the reality that some nepotism might be unavoidable.

The issue of whether interns who are neither employees nor workers are covered by discrimination legislation is yet to be determined. However, best practice is to ensure that a fair and documented recruitment process is adopted for interns as would be applicable to your employees. You should document the criteria applied to applicants and how the applicants were assessed against those criteria. This is particularly the case where an internship is competitive and could lead to employment.


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